Pension Funding Relief

[Guest OUCH]

Hi folks. Hopefully somebody here can point me in the right direction.

It is my understanding that in 2004 Congress passed legislation that granted funding relief for some pension plans, and that relief is set to expire. I'm looking for more details on this act, and unfortunately, haven't gotten too far using google. I am also interested in whether or not Congress is going to extend that funding relief. Any help or links are greatly appreciated.

TIA

[Kirk Maldonado]

Your pain is about to get much worse. The legislation pending before Congress will compound your funding problems.

[SoCalActuary]

The act is PFEA. It mandated a higher interest rate for current liability for two years, 2005 and 2004, based on corporate bond rates instead of US Treasury bonds.

The proposals in Congress would also use corporate bond rates, but they have other issues that would probably make for higher contributions in many plans.

[Guest eddie]

I can,t even find out where my pension is,can anyone suggest anything?

[jevd]

Here's a great site to track legislation

HERE

[AndyH]

I'm for impeaching all of em and reverting to pre-OBRA 87 rules.

[david rigby]

I can' even find out where my pension is,can anyone suggest anything?

Perhaps you could elaborate what you mean by "where". What type of pension is it? Defined benefit plan of a prior employer? (yes, I know this is the DB message board.) Defined contribution plan of a prior employer? IRA? etc.

[Guest OUCH]

Here's a great site to track legislation

HERE

Thanks for that link jevd. You wouldn't happen to know what the current legislation is called?

[jevd]

Here's a great site to track legislation

HERE

Thanks for that link jevd. You wouldn't happen to know what the current legislation is called?

I don't know what PFEA stands for but the current pending legislation currently in conference is HR 2830. You can put that in the search under the Bill # and it will come up.

This site may also be of some help:

http://share.ccastrategies.com/Insight/Doc...Provisions.aspx

[mwyatt]

A little befuddled here. First cursory glance is that 412 goes away, and we all end up using Unit Credit. Guess this will greatly simplify studying for the EA tests in the future, but what is the reality of what's being proposed? From further review, seems to be focusing on the Current Liability calculations; the notes just say "Minimum Funding Standards repealed"; Target Normal Cost takes precedence.

From a "soapbox" standpoint coming from the small plan market, can I make one suggestion concerning PBGC premiums? Let's limit the benefit valued for premium purposes to the lesser of the plan accrued benefit and the PBGC guaranteed minimum (including that fine print of a 30 year phase in of the guarantee for substantial owners). Why in God's name should I have to have a small plan pay a 4-5 digit premium when there is no possible way, barring outright thievery, that the PBGC would have to cough up any money for my client's situation?

[mwyatt]

Ok, I've read through the details.

If I get this straight, 412 funding method would consist of the following:

Target Normal Cost: PV of Accrued Benefit during the year, including increases in benefit attributed to salary increases (straight Unit Credit normal cost in other words)

Plus 7 year amortization of presumably BOY PVAB on new Current Liability basis less assets (but no established bases, just recurring computation of amortization payment).

Then reform of 404 limit is that the upper deduction would bring ability to top up assets to 150% of Current Liability plus Target Normal Cost.

Is forcing everyone to "pure" Unit Credit a good thing? After the OBRA '87 CL debacle, I don't think this is going to improve plan funding, especially in compensation based plans, to say the least (or am I misreading this entirely).

[SoCalActuary]

mwyatt - not sure which version you looked at.

My reading of the senate version, S1783, is that you maintain up to 7 bases, each fulling amortizing over 7 years, provided you are underfunded. All amortizations stop once the CL is funded.

The equivalent of the old OBRA FFL would be 180% of current liability, not 150%.

Further, large plans with the additional funding requirement would see their 90% rate slowly grow to 100% overa a few years.

The PBGC coverage issue is that Washington powerbrokers don't worry that they are overcharging small business owners on the premium for benefits that cannot be collected from the PBGC. As the late great Martin Slade said, "who cares about a few California millionaires?" (His words, not mine.)

[Guest OUCH]

Next question, for those of you who are actuaries:

Our actuary is not preparing the 2006 report yet, because he says that any calculations now would be purely speculative because of changes Congress may make to the funding rules. It seems to me that it isn't prudent to delay every DB sponsor's reports forever, and given that Congress usually takes its own sweet time with things, when can I expect to have an actuarial report.

I guess the real question in all of this is, when will I find out how much we need to fund to our db plan? We still don't know if Congress will extend funding relief or not, so what are we supposed to do in the interim?

Thanks again.

[SoCalActuary]

Next question, for those of you who are actuaries:

Our actuary is not preparing the 2006 report yet, because he says that any calculations now would be purely speculative because of changes Congress may make to the funding rules. It seems to me that it isn't prudent to delay every DB sponsor's reports forever, and given that Congress usually takes its own sweet time with things, when can I expect to have an actuarial report.

I guess the real question in all of this is, when will I find out how much we need to fund to our db plan? We still don't know if Congress will extend funding relief or not, so what are we supposed to do in the interim?

Thanks again.

Are you prepared for double billing? If he does the work now, and has to do it again, you are willing to pay for it, I assume. Seriously, you should give it until early April to determine the 2006 valuation. I suspect that Congress will do a few remedial things retroactive to Jan. 2006, with all else to start in 2007 or hopefully 2008.

[david rigby]

If the pattern holds, Congress will act in the first two weeks of April.

[Effen]

Does anyone have any insight on what is happening in DC? If they don't pick up the pension bill, does anyone foresee any RPA interest rate relief?

[AndyH]

Nope. Wish we had MGB.

All the more reason to go 412(i) some might say.

If the pattern holds, Congress will act in the first two weeks of April.

Oops about 4/15.

Passed Memorial Day, now???

How does it go, April showers, May flowers. June .......?

July has the 4th

Sept has Labor Day

Christmas?

Lots of new targets for them to shoot for. Maybe election day?

How to explain this to clients?

[Guest IsleBBack]

Does anyone have any insight on what is happening in DC? If they don't pick up the pension bill, does anyone foresee any RPA interest rate relief?

According to the CCA Strategies summary (posted earlier in the thread):

Effective date and transition:

House: Generally effective 2007; simplified yield curve transitions in over three years; 100 percent funding target transitions in over five years for plans funded above the target; and mortality rules transition in over five years. Current (2005) rules rolled forward one year for 2006.

Senate: Generally effective 2007; simplified yield curve transitions in over three years; 100 percent funding target transitions in over three years; and mortality rules transition in over five years. Current (2005) rules rolled forward one year for 2006.

So if I'm reading this correctly, both bills would extend the PFEA two-year rate relief to a third year. Unfortunately, the IRS hasn't provided the January 2006 Corporate Bond rate, but I was able to match their weighted averages, and based on my calculations, the top of the range will almost certainly be either 5.76% or 5.77%. Might be enough to start finishing valuations.

OOPS-followup-I forgot that the valuation has to use the actual gateway rate, even if the actuary uses a slightly lower rate for all other current liability purposes. Well, without the IRS "Composite Corporate Bond Rate" for December 2005, I'm stuck again.